The right of pre-emption, which arises from law or contract and creates new rights, is a right that grants shareholders the authority to be the buyer of the item upon which it is established when the item is subject to a sale or a transaction economically equivalent to a sale. The right of first refusal, or in other words, the right of pre-emption, can simply be defined as the preferential right to purchase a real estate given to a specific person. The right of pre-emption arises with the establishment of joint ownership and becomes exercisable when any share is sold to third parties or is subject to a transaction economically equivalent to a sale.
Legal Right of Pre-Emption
The legal right of pre-emption gives the co-owners of a jointly owned real estate the right to purchase the share sold to a third party under the same conditions. For the exercise of this right, it is irrelevant whether the share is partially or wholly sold. The legal right of pre-emption serves a social purpose. It is based on the principle of preventing someone from entering into a shared property ownership without the consent of other co-owners, which can already be fraught with problems.
Contractual Right of Pre-Emption
The contractual right of pre-emption arises when the owner of a movable or immovable property grants someone the right of pre-emption by contract. The pre-emption agreement is subject to written form, and this requirement is a condition for its validity. Like the legal right of pre-emption, the contractual right of pre-emption also creates new rights and offers the same powers to the owner. The right of pre-emption can be agreed upon by the parties for a maximum period of 10 years. The major difference between the legal right of pre-emption and the contractual one is that the former can only apply to immovable properties, whereas the latter can also be established for movable properties.
Another important feature of the contractual right of pre-emption is that it is a claim right, meaning it can only be asserted against the parties to the contract, binding only those parties. The contractual right of pre-emption can be established on a property subject to either joint ownership or co-ownership, depending on the freedom of contract.
Conditions for Exercising the Right of Pre-Emption
The right of pre-emption limits the owner’s right to transfer the property to anyone they wish, thus representing a form of indirect limitation on property ownership. This right does not constitute a restriction until exercised.
The right of pre-emption can be used when certain conditions are met. The Turkish Civil Code grants shareholders the right to sue for the pre-emption to keep the real estate within the current shareholders. By making it more difficult for third parties to join as shareholders in the property, the aim is to prevent the disruption of the existing partnership among the current shareholders.
Certain conditions must be met for the legal right of pre-emption to arise:
The property must be subject to joint ownership
The right of pre-emption holder must be a shareholder in this property
The property must be sold to a third party outside the shareholders (partially or wholly transferred)
When these conditions are met, the right of pre-emption will arise, and upon its exercise, the shareholder exercising the right of pre-emption will become the buyer of the property.
Upon the exercise of the right of pre-emption, a contract with the same scope and terms as the contract made between the seller and the third-party buyer will be established between the third-party buyer and the right of pre-emption holder. The difference in this regard for the contractual right of pre-emption will be discussed later in our article.
If the property subject to the right of pre-emption is transferred in another way (e.g., through donation or barter), this right will not be exercised. However, in such cases, the right holder may file a lawsuit claiming fraud.
Right of Pre-emption Can Be Used in Joint (Shared) Property Ownership
The right of pre-emption can only be used in properties subject to shared ownership. Shared property ownership can be established directly by law, or indirectly through a legal transaction, a decision of an official authority, or a court decision. Whether the property is a plot of land or an apartment is irrelevant. The essential prerequisite for the exercise of the right of pre-emption is not the nature of the property but that the property is subject to shared ownership.
The right of pre-emption arises at the moment when the shared property ownership is established. The Turkish Supreme Court (Yargıtay) 6th Civil Chamber in its decision (2004/10448 E., 2005/709 K., dated 07.02.2005) states:
"The right of pre-emption, in properties subject to shared property ownership provisions, is a right that grants other shareholders the priority to purchase a share when it is sold to a third party. This right arises when the shared property ownership is established and becomes exercisable when a share is sold to a third party."
The Supreme Court's decision (2005/8551 E., 2005/8234 K., dated 19.09.2005) is also in the same direction.
Right of Pre-emption Can Be Used by Shareholders
Article 732 of the Turkish Civil Code regulates who can exercise the legal right of pre-emption. The right of pre-emption can only be exercised by shareholders. The legal right of pre-emption is attached to the share, not the individual. Therefore, if a shareholder transfers their share, they will lose their right of pre-emption, and this right will pass to the new shareholder.
Right of Pre-emption Can Be Used in the Event of Sale of a Share in Joint Ownership or a Transaction Economically Equivalent to a Sale
In a property subject to joint or participatory ownership, if the use of each part of the property by the shareholders is determined by agreement or in practice, the right of pre-emption cannot be exercised in the event of the sale of a share in such property. A lawsuit referred to as a pre-emption lawsuit can only be opened for properties subject to shared ownership that are not divided by agreement or in practice. Shared ownership is defined as "Multiple individuals owning the entire property in specific shares without physical division."
The legal right of pre-emption can be exercised when the ownership share of the property is partially or completely sold. The Supreme Court General Assembly of Law in its decision (2005/358 E., 2005/470 K., dated 21.09.2005) states:
"The legal right of pre-emption is a right that arises when one of the shareholders of a property subject to shared ownership sells their share to a third party, giving the other shareholders the right to become the buyer of that share under the same conditions."
Actual Division
The law does not regulate actual division. However, in practice, especially within the framework of the Supreme Court precedents, it is accepted that actual division can, under certain conditions, prevent the exercise of the right of pre-emption. In doctrine, this is considered within the prohibition of abuse of rights.
In a property subject to joint (shared) or participatory (common) ownership, if the property is actually divided through a consensus reached by the participation of all shareholders, and these parts are definitively separated and independently used by the shareholders, then actual division is present. In the presence of actual division, also known as "effective sharing," the right of pre-emption cannot be exercised. Pre-emption lawsuits can only be filed for properties subject to shared ownership that are not divided either by agreement or in practice. In such cases, if the court concludes that there is actual division, it will dismiss the case. The burden of proving the claim of actual division rests with the defendant. This claim can be proven by all types of evidence, including witness testimony.
According to the Supreme Court 14th Civil Chamber decision (2018/5410 E., 2021/4017 K., dated 14.06.2021):
"The first instance court’s decision to dismiss the case states that ‘...even though the property has many shareholders, there is an effective sharing, as it is not necessary for each shareholder to actually use a part or for the shareholders using the property to use an area corresponding to their shares. Since there is effectively a division, the plaintiff’s exercise of the right of pre-emption when they did not claim any right over the area purchased by the defendant is inconsistent with Article 2 of the Civil Code...’ The decision by the Antalya Regional Court of Justice 5th Civil Chamber to reject the plaintiff's appeal on the merits states that ‘...considering the trial conducted by the court, the witness statements heard, and the entire file content, it was correct to dismiss the case since the property is used in five separate parts on the ground level, and there is actual division...’ However, for the claim of actual division to be accepted, it is necessary for the plaintiff and defendant to use separate parts of the property, and as the report in the file does not identify a separate area used by the plaintiff ... in the property in question, parcel no. 170, plot 3, the first instance court’s decision to dismiss the case due to the presence of actual division and the Antalya Regional Court of Justice 5th Civil Chamber’s decision to reject the plaintiff's appeal on the merits are not correct."
How to Exercise the Right of Pre-emption?
It is beneficial to explain the exercise of the right of pre-emption by dividing it into two categories: legal right of pre-emption and contractual right of pre-emption.
The legal right of pre-emption can be exercised by filing a lawsuit against the buyer. There is no way to exercise this right outside of a lawsuit. It is not possible for the holder of the right of pre-emption to exercise this right through a notary, mail, email, etc. Upon the conclusion of the lawsuit and the finalization of the court's decision, the ownership of the property will transfer to the holder of the legal right of pre-emption. When the legal right of pre-emption is exercised through a lawsuit, the resulting sales relationship will carry the same terms as the contract established with the third-party buyer. Regarding the price of the property, the sale price shown in the land registry will be considered valid.
According to established Supreme Court decisions, it will not be possible to claim fraud against the shareholder exercising the right of pre-emption on the grounds that the sale price is higher.
We mentioned that it is possible for a person to grant a contractual right of pre-emption to another person for movable or immovable property they own. We have also stated that there is a difference between the legal right of pre-emption and the contractual right of pre-emption. The contractual right of pre-emption is a personal right and will be effective only for the parties to the contract. For this right to be asserted against third parties in the case of immovable properties, it must be annotated in the land registry.
In such cases, the right of pre-emption can be asserted against third parties in the manner agreed upon in the contract. In this situation, the third party must carry out the transfer. Otherwise, the holder of the right of pre-emption can file a lawsuit for specific performance.
If no such procedure is stipulated in the contract, the method we mentioned for shared ownership properties will apply identically (Turkish Civil Code Article 735). In the case of a lawsuit for exercising a contractual right of pre-emption, the determination of the defendant differs according to the Turkish Civil Code and the Turkish Code of Obligations. Article 734 of the Turkish Civil Code states that this lawsuit can be filed against the buyer. Article 242 of the Turkish Code of Obligations makes a distinction, stating that "The holder of the contractual right of pre-emption, if this right is annotated and the ownership of the immovable property is registered in the name of the buyer, must file a lawsuit against the buyer within three months from the date they are notified of the sale or an economically equivalent transaction, and in any case, within two years from the date of sale." As seen, a distinction is made based on whether the buyer has acquired the ownership or not. Of course, for the right of pre-emption to be asserted against the new owner, it is necessary that this right has been annotated in the land registry.
Another difference between the legal right of pre-emption and the contractual right of pre-emption arises in the matter of the pre-emption price. In the case of the legal right of pre-emption, this price is the sale price to the third party, while in a lawsuit for exercising a contractual right of pre-emption, the determination of the price depends on whether the contract is ordinary or qualified. According to Article 241/3 of the Turkish Code of Obligations, "Unless otherwise stipulated in the contract establishing the right of pre-emption, the holder of the right acquires the immovable property under the conditions related to the sale agreed upon by the seller with the third party." As seen, the distinction between ordinary and qualified pre-emption contracts is considered, and it is stipulated that the price agreed upon in a qualified pre-emption contract or, if the contract is not qualified, the price agreed upon in the sale contract with the third party will be taken as the basis.
In Which Court Is a Pre-emption Lawsuit Filed?
The competent court for pre-emption lawsuits is the Civil Court of First Instance. The competent court, according to the Law No. 6100 on Civil Procedures, is the court of the location where the property is situated, which has absolute jurisdiction.
Duration of Exercising the Right of Pre-emption:
According to Article 733/4 of the Turkish Civil Code, the exercise of the right of pre-emption is subject to a time limit. This time limit is designed to prevent shareholders from indefinitely delaying legal action and thereby putting the buyer in a difficult position. There are two types of periods for exercising the right of pre-emption:
If the sale of the property is notified to the holder of the right of pre-emption by the buyer through a notary, the pre-emption lawsuit must be filed within 3 months from the date of notification.
If the sale is not notified to the holder of the right of pre-emption through a notary, then the pre-emption lawsuit must be filed within 2 years from the date of the sale.
The time limits for exercising the right of pre-emption are of a preclusive nature and are also considered by the judge ex officio. After these periods have passed, the transfer of the property to the third party becomes final, and it is no longer possible to file a pre-emption lawsuit.
Therefore, holders of the right of pre-emption should be careful about these time limits and exercise due diligence throughout the process to avoid any minor mistakes. For this reason, we recommend conducting the entire process with a specialist lawyer to prevent potential loss of rights.
Duration of Contractual Right of Pre-emption:
If the parties have established a right of pre-emption on a property through a simple written contract and have annotated this contract in the land registry, this right can be exercised within the period specified in the annotation. However, the effect of the annotation expires ten years after the date of the annotation, regardless of the situation (Article 735/1 and 2 of the Turkish Civil Code).
For movable properties, there is no situation such as annotating the right of pre-emption, so it is not possible to assert this right against bona fide third parties.
Exercise of Pre-emption Rights by Two or More Shareholders:
The right of pre-emption can be exercised either by a single shareholder or by multiple shareholders. In this case, multiple shareholders can assert their rights of pre-emption separately or together in a single lawsuit. When several shareholders exercise their legal rights of pre-emption, regardless of the share ratios, an equal division is made among the shareholders exercising the right of pre-emption. The share of the third-party defendant is equally distributed among the shareholders exercising the right of pre-emption, and the pre-emption price is paid in equal amounts by these shareholders.
This principle was accepted by the Supreme Court in its Unification of Judgments decision dated 11.06.1947, No. 5/18.
Fraud in Price in Pre-emption Lawsuits
Fraud in price in pre-emption lawsuits usually appears in two forms. Many people show the price of the property in the land registry as lower than its actual value to pay lower taxes and fees. Conversely, to prevent the holder of the right of pre-emption from exercising their right, the sale price of the property subject to pre-emption is shown higher than the actual agreement and payment amount between the parties. It is not possible to claim fraud against a shareholder who files a pre-emption lawsuit on the grounds that the sale price is higher.
The claim of fraud in pre-emption lawsuits, which is often asserted, can be proven with all legally permissible and envisaged evidence, as well as with all types of evidence, including witness testimony, under certain conditions.
Supreme Court 6th Civil Chamber decision (2011/8560 E., 2011/13386 K., dated 30.11.2011):
“When the right of pre-emption is exercised, a sales relationship with the same scope and terms as the contract made between the seller and the defendant is established between the shareholder exercising the right and the buyer. The pre-emption price consists of the sale price shown in the land registry and the total fees and expenses paid by the defendant. The shareholder exercising the right of pre-emption must deposit the total of the sale price shown in the land registry and the fees and expenses paid by the defendant as the pre-emption price. However, since the plaintiff is not a party to the sales contract made in the land registry, they can claim fraud in the price and prove this claim with all types of evidence.”
The doctrine's widely accepted view that fraud cannot be considered ex officio and must be asserted by the parties has also been adopted by the Supreme Court.
Supreme Court 6th Civil Chamber decision (2001/1887 E., 2001/2067 K., dated 13.03.2001):
“The shares subject to the right of pre-emption were sold to the defendant on 18.1.2000, and this lawsuit was filed within the 1-month legal period. The defendant's lawyer stated in the defenses that their client purchased the shares and did not claim a donation. As issues not raised by the defendant cannot be considered, it was erroneous for the court to issue a decision outside the request, and the decision must be overturned.”
Is It Possible to Waive or Forgo the Right of Pre-emption?
Shareholders can waive their rights of pre-emption on a property in a general, non-specific manner regarding a concrete sale. According to Article 733 of the Turkish Civil Code, such a waiver must be made in an official form and annotated in the land registry.
A waiver of the right of pre-emption in a specific sale can be validly made in a simple written form. A shareholder who waives their right of pre-emption in a specific sale can again exercise this right if the property is resold.
When a waiver is made, the right completely disappears, eliminating the obligation to notify the holder of the right about the sale of the property.
It should be noted that a general, non-specific waiver of the right of pre-emption made in a simple written form for a non-specific sale is invalid. A general waiver made in simple written form has no legal effect. For example, a simple written waiver by a shareholder stating, "I will not exercise my right of pre-emption for any sale of shares by any shareholder in the property I co-own in Adana" is legally invalid.
However, forgoing the right of pre-emption refers to relinquishing the right to exercise it in a specific sale transaction. This process, subject to written form, can be done before or after the sale. The main difference between waiving and forgoing the right of pre-emption relates to whether or not the right of pre-emption ceases to exist. In the case of forgoing, the right of pre-emption continues to exist, it is just not exercised for the specific sale transaction. Since forgoing is not a waiver, there is no need for annotation in the land registry.
Situations Where the Right of Pre-emption Cannot Be Used
The right of pre-emption cannot be used in transactions that are involuntary, non-consensual, gratuitous, or do not involve partial succession. Furthermore, even if the transaction is consensual, onerous, and involves partial succession, there are cases where the right of pre-emption cannot be exercised:
The right of pre-emption cannot be used in sales between shareholders.
It cannot be used in properties that have been physically divided among shareholders.
The right cannot be used if a shareholder transfers their share to third parties through donation.
The right of pre-emption cannot be used if the share is contributed to a company as capital. (Supreme Court General Assembly of Law decision 12/2 dated 27.03.1957)
It cannot be used in sales by compulsory increase.
The mere execution of a real estate sales promise contract does not give rise to the right of pre-emption.
The right cannot be used in dispositions upon death. (Supreme Court General Assembly of Law decision dated 27.03.1957)
When an inheritance is divided, the joint ownership ends, and the right of pre-emption cannot be used.
Pre-emption rights cannot be used in expropriations as they are involuntary transactions.
Legal pre-emption rights cannot be used on movable properties.
The right cannot be used in the sale of an independent section or share of floor easement.
If there is a waiver of the right of pre-emption, it cannot be used.
Supreme Court Decisions Related to the Right of Pre-emption:
Supreme Court 14th Civil Chamber, Decision 2019/311 E., 2019/7497 K., dated 07.11.2019:
This decision relates to a lawsuit for the cancellation of title deeds and registration arising from the right of pre-emption. The Court stated that the right of pre-emption is a right that arises when a shareholder of a property subject to shared ownership sells their share, either partially or wholly, to a third party, granting other shareholders the priority to purchase that sold share. The right arises when the shared ownership relationship is established and becomes exercisable upon the sale. The decision also addressed the necessity of conducting adequate investigation and analysis when determining if a party was a shareholder at the time of sale, especially in cases involving inheritance.
Supreme Court General Assembly of Law, Decision 2013/494 E., 2014/153 K., dated 26.02.2014:
This decision confirmed that a contractual right of pre-emption established in a written inheritance division agreement is valid and binding. If registered in the land registry, it can be asserted against third parties. The decision affirmed that there was no procedural impropriety in the plaintiff’s exercise of the contractual right of pre-emption due to a sale to the defendant.
Supreme Court 6th Civil Chamber, Decision 2011/8560 E., 2011/13386 K., dated 30.11.2011:
This decision elaborated on the nature of the relationship established when the right of pre-emption is exercised. The purchase price for exercising the right of pre-emption is the sale price shown in the land registry plus the fees and expenses paid by the defendant. The plaintiff, not being a party to the original sale contract, can claim and prove fraud in the price using all types of evidence, including witness testimony.
Supreme Court 1st Civil Chamber, Decision 6970 E., 6925 K., dated 03.05.1975:
This decision relates to a case where the plaintiff, who filed a lawsuit based on the claim of gabin (overreaching or exploitation), was found to have malicious intent. The specifics of the case were not detailed, but it indicates the Court's approach to claims of bad faith in pre-emption lawsuits.
Supreme Court 14th Civil Chamber, Decision 2014/1703 E., 2014/4542 K., dated 07.04.2014:
In this case, the Court ruled that a defendant cannot claim fraud in the price against plaintiffs who are not a party to the original transaction and are considered third parties. The decision clarified that the official sale price recorded in the land registry is the pre-emption price. The Court held it was incorrect to consider the defendant’s claim of fraud and to divide the pre-emption rights and obligations among the plaintiffs.
Supreme Court General Assembly of Law, Decision 2014/14-292 E., 2015/1544 K., dated 10.6.2015:
The Court ruled that a defendant's claim of fraud in the sale price constitutes an abuse of rights, as one cannot rely on their own fraudulent actions. The decision emphasized that no one can benefit from their own deceit.
These decisions reflect the Supreme Court's approach to various aspects of the right of pre-emption, including its exercise, the nature of the relationship established, the handling of fraud claims, and the implications of contractual arrangements.
Frequently Asked Questions
Who Can the Right of Pre-emption Be Exercised Against?
The right of pre-emption (şufa hakkı) can only be exercised against a buyer who purchases a share from a shareholder. In a pre-emption lawsuit, the buyer who is a third party is the defendant. A lawsuit cannot be filed against the shareholder who sold their share. The right of pre-emption cannot be used in sales between shareholders. It is exercisable against third parties but not against fellow shareholders.
When determining the defendant in a contractual right of pre-emption, it is necessary to differentiate whether the right of pre-emption granted by contract is registered in the land registry.
Does the Legal Right of Pre-emption Pass to Heirs?
The legal right of pre-emption is attached to the share, and it can be exercised by whoever owns the share. As it is linked to the share, the right of pre-emption cannot be transferred separately or passed through inheritance.
How Is the Pre-emption Price Determined?
The pre-emption price consists of the sale price shown in the land registry plus the fees and expenses paid by the defendant. Before a decision for registration in the name of the plaintiff, this amount must be deposited in cash within the period determined by the judge and at a location specified by the judge.
How Is the Pre-emption Price Determined in Cases of Fraudulent Pricing?
The most common type of fraudulent pricing practice is showing the sale price in the land registry lower than the actual sale price. The main purpose of this fraud is to pay less tax and duty. The Supreme Court generally accepts that the holder of the right of pre-emption will exercise their right based on the lower price shown in the land registry in cases where parties show a lower sale price to pay less tax and duty.
Can the Exercise of the Pre-emption Right at the Lower Price Shown in the Land Registry Be Prevented?
In most of the Supreme Court's decisions regarding the determination of the pre-emption price in cases of fraudulent prices, it accepts the holder of the right of pre-emption exercising their right based on the lower price shown in the land registry and considers claims of a higher actual price as abuse of rights. However, if the buyer rectifies the low price by paying the full duty before a lawsuit is filed, then the pre-emption right will be exercised based on this rectified price, and the holder of the right of pre-emption's request to exercise the right based on the previous lower price would be deemed incompatible with the principle of good faith.
Therefore, it is advised to consult a competent lawyer regarding the specifics of fraudulent pricing, the timing of duty completion, and price determinations to avoid any loss of rights in your specific case.
How Can the Exercise of the Right of Pre-emption in a Shared Property Deed Be Prevented?
A person intending to buy a shared property can discuss with other shareholders to prevent the filing of a pre-emption lawsuit. An official document should be obtained from the shareholders waiving their right of pre-emption, which should be annotated in the land registry.
Can the Right of Pre-emption Be Used in a Lawsuit for Partition by Sale (Izale-i Şuyu)?
A lawsuit for partition by sale (izale-i şuyu) is a lawsuit aimed at terminating joint or shared ownership of movable or immovable properties, allocating and specifying shares to the relevant parties. The exercise of the right of pre-emption requires a sale transaction, and a lawsuit for partition by sale does not have the nature of a sale.
When Should a Pre-emption Notice Be Issued?
A pre-emption notice must be given to other shareholders when one shareholder partially or wholly transfers their share to a third party in shared ownership. This notice starts the period for the other shareholders to exercise their right of pre-emption. According to Supreme Court decisions, if no pre-emption notice is given, the period for exercising the right of pre-emption does not start.
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